Medicaid expansion a significant part of Supreme Court’s ruling

Without mandate, CHLE’s Sullivan says poorer states will still be reluctant to opt in

July 05, 2012
   Jean Sullivan, JD

While many are focusing on the impact of the individual mandate part of the U.S. Supreme Court’s recent ruling on the Affordable Care Act (ACA), UMass Medical School health policy expert Jean Sullivan, JD, director of the Center for Health Law and Economics, said  more attention should be paid to the part that was struck down—a federal requirement that states adopt a Medicaid expansion for all adults with income less than 133 percent of the federal poverty level or risk losing all federal Medicaid funding.


“I predict that in the days and weeks ahead, a lot more attention will be paid to this real threat posed to Medicaid by the ACA ruling,” said Sullivan. “Leveraging federal Medicaid funding as a tool for bringing universal access to care for the poorest Americans has been dealt a serious blow.”

The Supreme Court ruled that the Medicaid expansion provisions of the ACA were essentially an entirely new program of health benefits and therefore the U.S. Department of Health and Human Services could not withhold states’ existing Medicaid funding if they refused to implement the new health benefits expansion. States can still voluntarily adopt the expansion and receive 100 percent federal funding for three years, and 90 percent funding thereafter.

“Commentators who make light of this ruling, saying all states will still ‘opt-in’ because they won’t leave all that money on the table, seem to have short-term memory loss,” Sullivan said. “The money was always on the table and that did not dissuade dozens of states from complaining bitterly about the expansion. Some of these states have serious fiscal constraints and political opposition to contend with; even if their health officials might want to cover these low-income adults, they will not easily find support to opt-in, any more than they found that support before the decision.” Indeed, political leaders in Florida,Iowa, Louisiana, Mississippi, South Carolina, Texas and Wisconsin have already signaled their intention to opt out.

Sullivan said that, apart from political considerations, the financial burdens on poorer states of expanding Medicaid could also be significant.

“Even if all medical expenses are 100 percent federally-funded for first three years, states will need to make fairly major infrastructure and administrative staffing changes, and those new administrative burdens can be daunting for small or fiscally-burdened states,” she said. “Once the federal match rate drops to 90 percent, the medical costs can be significant, particularly for states that have very restrictive income eligibility rules today.”

“Under Medicaid federal funding rules, states with lower per capita income get a higher federal match rate,” explains Sullivan. “For example, a relatively poor state might have a federal-to-state match rate of 70 to 30 percent on its Medicaid expenditures. Assume this state had a $1 billion Medicaid program. The state would typically pick up 30 percent of the cost, or $300 million per year on benefits today. A 2010 study funded by the Kaiser Commission on Medicaid and the uninsured indicates that states like these with restrictive income eligibility rules could experience more than a 30 percent increase in overall Medicaid caseloads under the Medicaid expansion. If you make the conservative assumption that these new adults will have health costs similar to the average Medicaid enrollee, the state’s costs would increase by 30 percent, to $390 million without the enhanced federal funding. But even when the federal government picks up 90 percent of the cost for the expansion, the state’s total benefit costs would go up by 10 percent, or $30 million—not a small number for a fiscally strapped state.”

“The direct and indirect economic benefits of the new federal funds are also substantial. If the mandatory aspect of the Medicaid expansion had survived and was in place, at full federal cost, for three years, many skeptical states would have experienced first-hand the primary and secondary economic benefits of the expansion and, after three years, would be far less likely to drop it, even if facing a 10 percent state cost responsibility,” she said. “I think that it would have been better legislative strategy to make it mandatory at 100 percent federal cost for three years, and then have converted it to an option only when states were required to kick in their 10 percent share. In that scenario, I think few states, if any, would drop it once they had had three years of experience with it. That strategy may have also made it much harder for any justice to characterize it as unconstitutionally coercive.”

In addition, since the Medicaid expansion is now only a state option, rather than a core component of universal coverage for the poorest of Americans, the funding may be more vulnerable to certain congressional budget writers, particularly where its demise would be seen as not hurting the middle class and might appeal to conservative states and politicians ideologically against growth in government entitlements, Sullivan said.

Regarding the ACA’s individual mandate, the Supreme Court upheld this requirement as a “tax” under Congress’s constitutional taxing authority. However, the court also held that Congress was not authorized to create the individual mandate under the Commerce Clause of the U.S. Constitution. The result of the Court’s decision is that the individual mandate survived the constitutionality challenge as a “tax,” but the decision also heralds a more conservative view of the Commerce Clause power.